A former senior Barclays employee has claimed that the bank's ex-chief executive Bob Diamond would have known that his traders were involved in the interest rate rigging scandal.

The whistleblower's accusation comes after the bank announced on Friday that it had begun a formal investigation into attempts to fix Libor, meaning that criminal charges could be brought against implicated traders.

The banker alleged that Barclays executives would have been informed about Libor concerns in 2008, adding that staff knew they faced the sack if they failed to inform senior managers of untoward behaviour.

Speaking anonymously to the Independent, the banker said: "Libor fixing was escalated by several people up to their directors. They would then have escalated it up the line because at Barclays if you don't escalate, and it is found out that you haven't, it is grounds for disciplinary action. You will be dismissed."

The director of the Serious Fraud Office, David Green, said on Friday that he had "decided to formally accept the Libor matter for investigation" after reviewing the information provided by the Financial Services Authority (FSA) which last week fined Barclays £290m for attempting to manipulate the price of Libor, the London interbank offered rate.

The fine related to events that took place between 2005 and 2009 when the bank was found to have manipulated the prices it submitted to help its own traders and rival banks' traders. Part of the fine also related to attempts by the bank to lower its Libor submissions during the 2008 banking crisis to reduce the chance that it was regarded as being in financial difficulty – which it was not.

The investigation is understood to be into the wider market and not just Barclays.

On the day the Barclays fine was announced Tracey McDermott, the acting director of enforcement and financial crime at the FSA, said that a "number of other significant cross-border investigations in this area" were under way involving other banks. "The action against Barclays should leave firms in no doubt about the serious consequences of this type of failure," she said.

At this week's Treasury select committee, Diamond had said: "I understand that there will be follow-up criminal investigations on certain individuals. It's not up to us, but we are certainly not going to stand in the way of it".

The Barclays chairman, Marcus Agius, is due to appear before MPs on Tuesday.

Meanwhile the political row over the Libor-rigging scandal looks set to be reignited next week with the chancellor, George Osborne, reportedly preparing to oppose a European Union crackdown on bankers' bonuses.

Osborne is due to attend a finance ministers' meeting on Tuesday at which he is expected to argue against European proposals for a 1:1 bonus-to-pay ratio intended to curb excessive City pay deals, according to the Financial Times.

In a Commons debate on Thursday, Osborne traded insults with Labour's shadow chancellor, Ed Balls, after the chancellor claimed in an interview with the Spectator that people working with Gordon Brown under the last Labour government were "clearly involved" in the Libor scandal. Osborne claimed the "Brown circle" included Balls and that he had "questions to answer".

Balls demanded Osborne provide evidence of his accusation or retract it and apologise. Balls said the allegation was "utterly false".